AdvisorShares Weekly Market Review – Week Ending 6/23/2017

Highlights of the Prior Week

Central Bank Hedge Funds?

Macro

For the third week in a row, the more volatile benchmarks outperformed the stodgier ones. The Dow Jones Industrial Average was up five basis points and the S&P 500 added twenty basis points compared to 0.64% lift for the Russell 2000 and the 1.83% jump for NASDAQ. In isolation, this would seem to be an early-cycle trade (risk taking tends to outperform early in the stock market cycle). We’ve all read about the narrowing leadership in the market year to date, even covering it in this report. This recent trend works against the narrowing leadership idea and while it is clearly not early in this stock market cycle, maybe we can be so fortunate that it is only the middle of the cycle.

It is widely known that the Bank of Japan has been a large buyer of Japanese equities, mostly through ETFs. In recent months, it has also become known that the Swiss National Bank has been very active buying equities as part of its attempt to put downward pressure on the franc (it prints francs and buys equities). Zero Hedge reported that the SNB increased its holdings by $17 billion in the first quarter of 2017 up to $80 billion. However unlike Japan, the SNB has been buying US equities, not domestic equities. Part of the equation could be that the amount of dollars (or francs) involved would overwhelm the Swiss market. Based on a back of the envelope calculation, the largest 30 or so Swiss companies adds up to about $600 billion making the $17 billion of new money from Q1 equal to about 3% of the entire market. Dennis Gartman brought this up in last week’s AdvisorShares Alpha Call, referring to the SNB as a hedge fund.

Here’s one you may have missed that might take a while to play out; something called the Alternative Reference Rates Committee comprised of large international banks was convened to explore an alternative to LIBOR in reaction to the many allegations of manipulation in recent years. The New York Times reported that the committee chose the Overnight Bank Funding Rate which is “unsecured bank lending rate based on transactions in the federal funds and Eurodollar markets.”

The 34 banks that are subject to the Fed’s stress-testing process all passed the first part of the test which involves being able to withstand adverse market and economic conditions. Next week they will get the yeah/nay on capital plans (dividends/share buybacks). On the belief that this is good news, it still didn’t help stock prices as broad financial sector ETFs and narrower bank group ETFs were unable to recover from declines earlier in the week and kept working lower on Friday. While conducting these tests certainly doesn’t make things worse, they amount to an attempt to prevent a past crisis. At some point there will be a bank event, even if it isn’t for many more decades, but it will be different than any previous crisis.

ETF News

A lot of attention was paid to the news that MSCI would include Chinese A shares in its indexes. A little less attention was paid to the news that Argentina would remain a frontier market. The benchmark Merval Index fell 4.82% on Wednesday, the day after the announcement, while the two ETFs tracking Argentina had similar declines. Related, or not, Argentina made news with plans to sell a 100 year bond. Marketwatch says the deal could come as soon as today with expectations for $2.75 billion and a yield close to 8% compared to Argentina’s ten year which yields in the high fours.

But it was clear almost from the start that Kalanick’s return to Uber was going to be contested, according to several people knowledgeable about what happened at Uber over the past week. From the moment his leave was announced, some people who knew the famously hard-charging Kalanick were skeptical that — based on how he had managed the company over eight years — he could change in the ways needed to allow him to return.

The judge called the debt “historic,” and wasn’t swayed by his lawyer’s arguments, which included this, according to the Guardian: “He is not a sophisticated individual when it comes to finances. I am asking for a real last chance for Mr. Becker to come good…It has just taken longer than anticipated,” said his advocate, John Briggs.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers. AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.